🔒 Santam CEO: Here’s R1bn, but we’re still not liable for lockdown claims. MUST LISTEN!

Santam, South Africa’s largest short-term insurer, has been making headlines in recent months – for all the wrong reasons. While the tourism and hospitality sectors have been in absolute turmoil because of Covid-19 and the strict national lockdown, the insurance giant has repeatedly repudiated their claims on Business Interruption policies. Even after a precedent-setting and significant court victory between a small Cape Town restaurant and and Guardrisk – a  leading insurer – Santam has not budged on its stance that the lockdown is not covered under its policies. In this podcast, BizNews founder Alec Hogg speaks to Santam CEO Lizé Lambrechts in an effort to try to understand the thoughts behind the insurance heavyweight’s “infuriating” decisions. Santam announced at the weekend that it is setting aside R1bn for some of its clients, with the caveat that its bosses continue to believe it is on firm legal footing in repudiating business insurance claims. RMB Attorneys – a legal firm representing over 340 business interruption claimants countrywide – has slammed this relief and has told the FSCA that the relief offered is tantamount to converting valid business interruption policies into funeral cover. These ‘voluntary relief payments’ sadly appear to be but a band-aid for a bullet wound. – Nadya Swart

Alec Hogg’s interview notes for interview with Santam CEO Lizé Lambrechts


Lizé Lambrechts is the chief executive of Santam, a position she’s held for the last, well, almost five years. But I guess, Ms. Lambrechts, you’ve never seen a challenge quite like the one that you’re going through at the moment?

Lambrechts Santam CEO
Lizé Lambrechts

Alec, absolutely right, I must say, and I’ve been working for much longer than that – and this is probably the most challenging but interesting time that I’ve ever experienced. 

And as an actuary, these kinds of numbers that we’re seeing everyday from Covid-19 on the one hand and (we’re going to get into it in a moment) the issues that your clients are facing must give you some very interesting insights? 

Yes, I must confess here that I’m a non-practising actuary, so I’m not so much into the numbers anymore. But it is an interesting time for all of us. 

Santam is well capitalised, yet they refuse to pay out claims

You’ve come under an enormous amount of pressure recently, Santam – being the market leader in South Africa – having business interruption insurance and many of your policies being pretty specifically worded around the pandemic, and yet you decided not to pay it out. Now, there are two theories. I’m going to start with the first, if you don’t mind, and that is that the insurance industry in South Africa cannot afford to pay all of the claims that they could potentially face. 

You want me to respond to that? I obviously cannot speak on behalf of other companies, but that is really not the reason why we have not been paying claims. The reason is simply that we interpret the policy wording as not responding to most of the claims that we have. You will know that there are many cases internationally – we are by no means unique – and Santam and the other insurance companies in South Africa are no different from other companies in the world. So, we are not different. That’s why we haven’t been paying claims. 

Could you afford to meet all the claims? 

Alec, that’s a question that I can’t really answer, because we don’t really know exactly how many claims we will have. We don’t know how long this business interruption will last. The indemnity periods are all different for different types of policies. But I can say that we’re in a closed period, so I really cannot say much about numbers, but Santam has always been well capitalised. 

And you do have a big parent in Sanlam, I guess, to support you. 

It is always good to have a big parent, but as I said – remember we have other shareholders in Santam as well and on its own – Santam is well capitalised.

Now, the announcement that you made over the weekend seemed to many to be a reversal of the previous position, which was: we’re not going to pay until the courts tell us to. What initiated this change in approach?

Let me just be clear – it’s definitely not a change in approach, because we are not paying claims.

So to be very clear, and we’ve been talking about this for a while: we’ve seen the developments, we’ve seen how our clients are suffering and maybe naively we thought that this whole lockdown and the impact on our clients will not last so long. And we maybe also naively thought that we would get legal certainty earlier. 

But seeing that this is going to take much longer, we understand that our clients are battling now, and we made a decision as a company that we want to help our clients with financial relief. So, we’re not paying claims. We’re seeing that they’re battling and we want to help those clients that are really impacted – with a bias towards small clients that don’t have a lot of other recourse – to help them with some sort of financial relief in the meantime. 

Why the court system is the preferred method to obtain certainty

Why are you going to court? Is there not an easier way, perhaps, through arbitration? 

The problem with arbitration is that it’s only legally binding on the parties in arbitration. So, court is really the only process where you can get final legal clarity that will also pull through to all the other players, including our reinsurers in our insurance chain. 

How long is it going to take to get the court’s final decision?

I really don’t know, I cannot tell you that. What I can tell you is that we have been in very constructive discussions with both our regulators to see if there’s anything we can do. This is not only Santam – a couple of other companies as well. We’re trying to see if there is anything that we can do to get the process to get there quicker? Also, know that there are many other cases on exactly the same principles – legal cases and court cases – happening elsewhere in the world and we will also, obviously, as South Africa take guidance from that. 

Different wordings on the various Santam policies. The court case going on with Ma-Afrika (I think) is the one that we’re going to hear in September. Is that going to be a precedent for all of them as far as you’re concerned?

It will not be for all policy wordings and it will not be for all cases because there are also different outcomes depending on where the company is located, when there were Covid cases – it’s really not a simple matter. But I do think it will give us clarity on a large number of our cases. 

And the engagement from the Financial Sector Conduct Authority – we do understand that the industry has been talking with them, with the FSCA, and also that the FSCA has been imploring you to pay these claims. Have you made much progress with them? 

I think where we are now is really progress insofar as there is agreement between us and the FSCA now, and you can see in the press release that they put out on Friday that there is a need for legal clarity from all parties in South Africa – our policyholders, our insurers, reinsurers and the regulators. And that, for me, is progress.

We’ve had – as Santam – no instruction to pay claims from anyone. What we are doing now is really a voluntary contribution to our clients that we know are really suffering badly out there. 

Santam’s urgent ‘relief’ formula

How did you decide upon that figure of R25,000 minimum and a maximum of R1.5m for individual policyholders? 

Sjoe, Alec. I suppose we got the actuaries cracking on that. Maybe don’t look so much at the minimum and the maximum, but look at: what we are doing is we are taking the monthly sum insured of the clients that we feel qualify – and we’re looking at two months sum insured – and we will be paying them more or less 70% of that. 

The reason why it is for 2 months is because those were the two months that we really had a very hard lockdown and many of those clients really could not trade at all, and the 70% of the sum insured is to allow, at the very general level, for variable expenses / savings that they could have had. So, that is really the formula. 

The 25,000… I mean, we don’t want to pay less than that, but it will actually be very few clients that will be impacted by that, because that means that they must actually have a very low sum insured and therefore obviously quite a very low premium. 

The 1.5m maximum is just because we really want to make sure that there’s enough money to help the smaller clients. We don’t want to pay huge amounts of the money that we have available to big companies. We think that they have other recourse in addition to financing. 

So just explain, if you would, the whole process of putting aside R1bn in urgent relief (or half a billion or R2bn)? I just want to inside your heads and the way you were thinking about the approach that you’ve now taken.

Well, we looked at really what we think would be a meaningful contribution to our clients. So, we looked at the two months at 70%. That is really what informed us the most. 

And how many clients are affected? 

We’re still busy with that process. I can’t really give you a number now. 

But would it be hundreds or thousands? 

It will be more than a thousand, but I can’t tell. I mean, we are still busy in the process, so I don’t want to quote a number that’s going to be incorrect.

Santam maintains that they need legal certainty – that they agree with

And the court case on the 1st of September – are you absolutely bound by whatever comes out there? 

Alec, it really depends on what the judgment looks like. It is really difficult to say now. We do want to get to the point that we have legal certainty as soon as possible, so we will not prolong this unnecessarily. But I mean, if there are still arguments that we disagree with and we feel that it’s worthwhile taking it through an appeal process, I’m sure we will look at that. But not with the purpose of just delaying the response as long as possible. It’s difficult to say now. It depends really on what happens in the process and what the judge’s ruling looks like. 

Explain to us why it is that you believe that this pandemic is not a justification for a business interruption claim? Just so we can understand exactly where you’re coming from. 

Basically, what we are say is that the policy wording allows for a local occurrence of an infectious disease – it actually doesn’t say anything about a pandemic, by the way – and the impact that that local infection has on a specific business. That’s what we cover. 

And that is, to give you an example: let’s say it’s before lockdown (we have claims like that and we settle claims like that) and a company was trading and someone walks in and they had Covid and therefore they have to actually stop trading for a week, because they have to deep clean, maybe have to send their people home for quarantine (whatever is appropriate to the industry that they’re operating in) – we would cover that incidence, the one week or two weeks or so that they really need to recover from this local incident. 

It’s very different from saying we must cover the impact of government regulations that cause people to close down. 

And if the Financial Sector Conduct Authority were to say: but we do think that because of the government regulations – you should have to pay the claims (which is what they’ve done or what they’ve suggested) – then that is a difference of opinion from where you’re standing? 

I think what we have agreed now between us and the regulators is that there may be a difference of opinion and it really is better to take this through a court or maybe an arbitration process that will give clarity to all of us. 

What about internationally? Have there been any court findings yet? You did say earlier that there are a number of similar court battles, if you like, that are happening at the moment. 

Alec, I must say, I don’t watch them all individually, but I’m not aware of any specific court findings that are relevant to our situation here in South Africa that have been finalised. I am aware of a number of cases that are ongoing at the moment. 

And as far as the potential claimants are concerned, how do they go about getting their something between R25,000 and R1.5m? 

We’ll be working with our brokers who are very valuable partners for us in this whole endeavour, and we’re trying to streamline the process as much, so we will actually contact our brokers with the clients (we have got enough information) that we think qualify for this. We will have a very streamlined, very easy process for the clients to notify us and then hopefully we can start processing payments from next week onwards. 

The intended beneficiaries of the urgent ‘relief’ payments

It’s only for the small and medium enterprises?

It’s a bias towards the small and medium enterprises, yes. 

What do you mean by that? 

It depends on what your definition is. It’s definitely not for big corporates. There may be larger, call it medium enterprises that will have quite larger sums insured that make it – according to the formula – work out to more than R1.5m, but we will cap them at R1.5m – because we really want to ensure that the smaller companies can also get a reasonable amount. 

If the courts then find that you are having to pay – just to confirm, on the one hand, you say you have the resources to be able to do it (in other words, it’s not going to put Santam out of business) and on the other instance, this payment that you’re making now, this urgent relief, as you call it – it’s going to be taken into account with the final settlement? 

That’s correct. We’ve been clear that should the courts find in our favour, which is still what we think will happen, then we’re not going to ask for this money back. This is really a relief payment to our clients that are really battling out there. Of course, should the court not find in our favour or in the favour of the clients, and this becomes a claim, we will offset this money against the claim – because we don’t think that the client should get paid twice for a loss.